Fed's Rate Cut Signals Spark Crypto Selloff and Massive Liquidations

When the Federal Reserve held its policy meeting on Wednesday, Jerome Powell and fellow officials delivered what appeared to be a dovish move—cutting interest rates by 0.25% to the 3.75%-4.0% range. Yet the crypto market interpreted this differently, triggering a sharp selloff that wiped billions from the space.

Why Markets Reacted Negatively to Fed’s “Hawkish” Cut

The surprise came not from the rate cut itself, but from what the Fed didn’t signal. Market participants had anticipated a December rate cut, and when officials failed to guide toward additional near-term stimulus, risk assets suffered. The Fed did announce an end to quantitative tightening—traditionally a bullish signal meant to ease financial conditions—yet this failed to lift sentiment.

Bitcoin (BTC) is currently trading at $95.29K with a 24-hour decline of -2.39%, while Ethereum (ETH) has dropped to $3.28K, down -2.74% in the same period. The broader crypto market capitalization contracted by 4% over 24 hours, settling at $3.64 trillion.

The Liquidation Cascade Unfolds

The selloff triggered a cascade of forced closures in leveraged positions. Liquidations surged by 130%, exceeding $1.3 billion in a single 24-hour window. More than 213,000 traders found their positions underwater, with Bitcoin-focused contracts accounting for roughly $500 million in losses and Ethereum positions facing approximately $255 million in margin calls.

This pattern reflects how interconnected derivatives markets amplify price movements. As prices slip lower, stop-losses trigger automatically, forcing more selling in a self-reinforcing cycle.

Fear Spreads Across Market Metrics

The Fear and Greed Index dropped into the fear territory at 34, with CNN Money’s version sitting at 42—both in their “fear zones.” When anxiety grips investors, open interest in futures contracts typically contracts as traders reduce exposure. Indeed, derivatives market open interest fell by more than 1% to $161 billion, confirming that participants are trimming their bets.

History shows this pattern repeating: each time uncertainty spikes—whether from policy signals or geopolitical announcements—the crypto market experiences both sharp price declines and elevated forced liquidations as margin calls mount across major trading platforms.

The crypto crash today underscores how sensitive digital assets remain to macro policy shifts and shifts in market psychology, with both technical and fundamental factors conspiring to create downside pressure simultaneously.